Is interest on a security deposit mandatory?

It depends on the state and the agreement. Where nothing is mandated the deposit earns nothing and loses real value throughout the tenancy.

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Security Deposit Interest Calculator

Interest due on a rental security deposit. Several Indian states mandate interest on deposits held, and where nothing is mandated the deposit loses real value every year it sits.

Also called: rental deposit interest, security deposit refund.

Amount refundable

$2,460.00

$2,460.00: the 2,400 deposit plus $360.00 of interest, less 300 in deductions. Over 3 years the deposit has lost purchasing power wherever inflation exceeded 5%.

Interest earned

$360.00

Deposit with interest

$2,760.00

Interest per year

$120.00

Effective annual return

4.77%

On real value

purchasing power wherever inflation exceeded 5%.

How this is calculated

Method and background

How this is calculated

The deposit accrues interest at the applicable rate, which varies: some state rent control and tenancy laws mandate a rate, the Model Tenancy Act contemplates one, and many agreements are silent. Where no interest is paid, the deposit loses purchasing power at the inflation rate for the whole tenancy, which on a large deposit over several years is a real transfer from tenant to landlord. Deductions must be itemised against actual damage, not applied as a matter of course.

simple interest on the deposit for the period held

D: Deposit
t: Years

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

three years at five percent simple

Deposit held: $2,400.00
Applicable rate: 5%
Years held: 3
Interest basis: Simple
Deductions claimed by the landlord: $300.00

Amount refundable$2,460.00

2,400 x 5% x 3 = 360 interest; the refund is 2,400 + 360 less the 300 deduction

Open this example

no interest returns the deposit less deductions

Deposit held: $2,400.00
Applicable rate: 0%
Years held: 3
Interest basis: Simple
Deductions claimed by the landlord: $300.00

Amount refundable$2,100.00

boundary: states that require no interest on a deposit reduce this to the deposit less deductions

Open this example

Method and limits

What it assumes

A single deposit held for the whole period.

What it deliberately does not model

The applicable rate depends on state law and the tenancy agreement, and is an input here rather than a lookup.
What may lawfully be deducted varies by jurisdiction.

Formula version 1.0.0 · definition 1.0.0 · United States · Report a problem with this calculator

Frequently asked questions

Is interest on a security deposit mandatory?: It depends on the state and the agreement. Where nothing is mandated the deposit earns nothing and loses real value throughout the tenancy.